Storm Clouds Loom Behind Sunny Numbers For Sports Betting Handle

storm clouds

A big headline this month for the U.S. sports betting industry was the $1 billion wagered in New Jersey in September, a new threshold revealed by state regulators in their revenue report this week.

But even as betting handles continue to grow across the U.S., more sobering numbers are also coming out.

In Pennsylvania, the online operators spent nearly $20 million on promotional credits in September as the race to acquire customers intensified — while gross sports betting revenue in the state checked in at $48.1 million. Fortunately for the operators, the credits are deducted from the overall revenue subject to the state’s aggressive 36% rax rate.

FanDuel led the way by offering $7.2 million in credits, while DraftKings spent $3.1 million in trying to attract customers.

The allure for a company of getting its app into a gambler’s smartphone is so great that, as Penn Bets reported, Caesars and TwinSpires in recent months have regularly spent more on credits than the companies took in from revenue in Pennsylvania.

In Michigan, DraftKings in September racked up $106.9 million in handle — yet managed to lose $4.3 million after accounting for all the promotional spending. And DraftKings hardly was the only book to lose money for the month.

Something has to give — right?

The volume of spending for sports betting customer acquisition has industry insiders buzzing.

On a CAA World Congress of Sports panel last week, PointsBet USA CEO Johnny Aitken addressed the trend, according to a report in the Sports Business Journal.

“What I see at the moment is a lot of irrationality,” said Aitken, whose company refrains from the same national ad and customer signup spending as competitors.

“You’ve got large operators who are looking to stabilize and grow their market share,” Aitken said. “You’ve got new operators that are coming into the fray and trying to make up for lost time. We’re not going to get sucked into a game where we’re acquiring customers with no true sight line of payback.

“We’re very headstrong on just building the best technology stack, but around us it’s World War III,” Aitken added.

Sports betting consultant Sara Slane agreed with Aitken on the spending frenzy.

“Is it irrational right now? Absolutely,” Slane said, according to the published report. “Is it going to slow down at some point? One hundred percent. Across the board, everyone is taking a step back and saying, ‘What is the longevity of this? How is this actually going to translate into making money?’”

Consolidation coming, another executive warns

Amy Howe, who was named as FanDuel CEO this month, told The Financial Times recently that a day of reckoning lies ahead.

“Ultimately this market is going to settle out with three, four, five competitors,” Howe said. “There are too many competitors right now to sustain this level of spend.”

FanDuel and DraftKings have acknowledged they are not yet profitable despite surging revenue in the U.S. from increased legalization of sports betting, but they expect to achieve profitability within several years.

Photo: Shutterstock

Author: Wanda Peters